Mean-Variance Portfolio Allocation with a Value at Risk Constraint
AbstractIn this paper, I first provide a unifying approach to Mean-Variance analysis and Value at Risk, which highlights their similarities and differences. Then I use it to explain how fund managers can take investment decisions within the well-known Mean-Variance allocation framework that satisfy the VaR restrictions imposed on them by regulators. I do so by introducing a new type of line to the usual mean -standard deviation diagram, called IsoVaR, which represents all the portfolios that share the same VaR for a fixed probability level. Finally, I analyse the "shadow cost'' of a VaR constraint.
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Bibliographic InfoPaper provided by Centro de Estudios Monetarios Y Financieros- in its series Papers with number 0105.
Length: 17 pages
Date of creation: 2001
Date of revision:
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Postal: Centro de Estudios Monetarios Y Financieros. Casado del Alisal, 5-28014 Madrid, Spain.
Web page: http://www.cemfi.es/
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Other versions of this item:
- Enrique Sentana & Enrique Sentana, 2001. "Mean-Variance Portfolio allocation with a Value at Risk Constraint," FMG Discussion Papers dp380, Financial Markets Group.
- Enrique Sentana, 2001. "Mean-variance portfolio allocation with a value at risk constraint," LSE Research Online Documents on Economics 25058, London School of Economics and Political Science, LSE Library.
- Sentana, Enrique, 2001. "Mean Variance Portfolio Allocation with a Value at Risk Constraint," CEPR Discussion Papers 2997, C.E.P.R. Discussion Papers.
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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- Grau-Carles, Pilar & Sainz, Jorge & Otamendi, Javier & Doncel, Luis Miguel, 2009. "Different risk-adjusted fund performance measures: a comparison," Economics Discussion Papers 2009-54, Kiel Institute for the World Economy.
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